Budget: Short term gain could cause long term pain for pensions

As the Budget looms, RSM UK is calling on the government to consider the long-term impact of any potential changes to pensions, and warns against making short term gains which could jeopardise future market stability. With mounting speculation that pensions are being lined up as a target to help plug the Chancellor’s £22bn deficit, RSM UK is urging government to take a long-term approach to help pensions savers retain certainty over future financial plans. 

Ian Bell, Head of Pensions, RSM UK, comments: “With promises not to increase income tax, national insurance or VAT leaving the chancellor little room for manoeuvre, pensions could be viewed as a sitting duck, and changes are looking increasingly likely. We hope any changes will be made with a long-term plan in mind, avoiding a short-term raid that could potentially cost savers and the pensions industry dearly in the long run. Pensions saving is a long game, and successive governments frequently making changes that move the goalposts for retirees mean pensioners and the industry have suffered. We’d like to see the stability retained to provide certainty now and in future.”

The Institute for Fiscal Studies has recently suggested that capping the pensions tax-free lump sum at £100,000 may be an option. Other rumoured potential changes include varying the annual allowance and adjustments to pensions tax relief. 

Ian Bell continued: “We hope the government will heed lessons learned from tax changes made in the 1997 budget, when the UK pensions industry was in a great place, with final salary schemes largely in surplus. Changes made at that time triggered a lengthy funding downturn for the pensions industry. Our plea to the Chancellor is not to undo the hard-won benefits gained over the past 20 years. The pensions industry is now back in a good place, and we don’t want to see short-term gains made at the expense of stability.”